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The recent Australian case of Santos Ltd v Fluor Australia Pty Ltd [2017] QSC 153 gives credence to the Society of Construction Law Delay & Disruption Protocol 2nded in determining the sufficiency of the plaintiff’s pleaded claim for delay and disruption.

The Society of Construction Law Delay & Disruption Protocol (the "SCL Protocol") was developed by the UK Society of Construction Law to provide guidance on the assessment of time extensions and the associated compensation due to construction delays and disruption. Although developed in the UK, the SCL Protocol has been used extensively throughout Asia, Europe and the Middle East by judges, arbitrators and adjudicators alike, to assist in determining party culpability for delays and disruption on construction projects.

The SCL Protocol 1st ed was published in 2002 and was updated in February 2017 by the SCL Protocol 2nd ed. While the SCL Protocol 1st ed has been referred to extensively by the Australian Courts, the Supreme Court of Queensland’s decision in Santos v Fluor is an early adopter of the SCL Protocol 2nd ed, and demonstrates how the Australian judiciary continue to give credence to the SCL Protocol when determining party culpability for delays and disruption on construction projects.

Key facts

The key facts of the case are as follows:

Fluor had been employed by Santos to engineer, procure and construct certain facilities required by Santos as part of the extraction of coal seam gas from coal seam fields in the Surat Basin in Queensland (GNLG Project).

Santos filed a statement of claim seeking the payment of AUD$1.4 billion due to Fluor's alleged breach of the engineering, procurement and construction contract (the "Contract") (Part D of the claim) and the subcontracts Fluor entered into for the purpose of undertaking work pursuant to the Contract (Part C of the claim). Santos alleged that the costs resulting from these breaches constituted "excluded costs"’ under the Contract, which were irrecoverable by Fluor under the Contract. Among other things, Santos alleged that Fluor's breaches of contract had caused culpable delay and disruption to the GLNG Project.

Fluor brought an application to strike out Parts C and D of the statement of claim on the premise that Santos failed to establish a causative link between the multiple alleged breaches and the alleged delays, disruption and loss.

The Strike Out Application Failed

Santos pleaded a measured mile approach to assess the disruption caused by Fluor’s alleged failure to conduct inspections of the works in accordance with good industry practice. Fluor argued in reply that, pursuant to the SCL Protocol, a measured mile analysis proceeds upon the basis it is not possible to undertake a critical path analysis of delay or to analyse the cause and effects of the delay claimed. On this basis, Fluor submitted that Santos must plead that it is not possible to disentangle the causative contribution of individual breaches. Flanagan J was not swayed by Fluor’s argument.

Instead, Flanagan J concluded, by reference to the SCL Protocol 2nd ed, that the measured mile approach is an accepted method of calculating lost productivity, and recognised that the measured mile approach may be utilised to support a claim predicated (as here) on the existence of disruption, as opposed to critical delay. His Honour therefore held that:

“[t]here is… a sufficient pleading of material facts which is said to give rise to the causal connection between the breaches and the amount claimed for delay and disruption."

On this basis, Flanagan J dismissed Fluor’s application to strike out the sections of Santos’ statement of claim setting out its alleged entitlement for disruption costs based on the measured mile approach.

Conclusion

The SCL Protocol 1st ed has for many years provided guidance to courts, arbitrators and adjudicators in determining parties' claims for delays and disruption on construction projects. It comes as no surprise the SCL Protocol 2nd ed has continued to provide such guidance in Australian cases, and we expect judges, arbitrators and adjudicators in other jurisdictions to continue to have regard to the SCL Protocol 2nd ed. The SCL Protocol, however, represents guidance only, and is not binding on contracting parties or any court or tribunal unless the parties expressly agree to this being the case.

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